Kenya’s BitPesa Launches Beta Test of Remittance Service

BitPesa CEO Elizabeth Rossiello working with students in Nairobi at a recent presentation.

John Karanja

One bitcoin start-up is building what it hopes will become a template for using digital currencies in the developing world, a much-talked-about market for cryptocurrencies. It’s called BitPesa, it’s based in Nairobi, and it’s beginning a beta test this week of its first product, a remittance service for Kenyans living abroad.

On Friday, the start-up launched a pilot remittance program involving about 15 Kenyans in London, who can begin using BitPesa to send money back home. If it works, and spreads, it promises to lower the billions currently spent on transfer fees, and, its founders hope, maybe even spark a tech boom in Kenya.

BitPesa is the brainchild of Duncan Goldie-Scot, a well-known name in microfinance, and Elizabeth Rossiello, a Queens-born former Credit Suisse banker with a background in microfinance who’s been living in Nairobi the past five years. With Ms. Rossiello acting as CEO, the company has raised $700,000 so far, and its investors include Barry Silbert, founder of CEO of the private asset exchange Second Market, and Joe Mucheru, who runs Google’s East Africa operations; Mr. Mucheru’s investment is a personal one.

“There’s a lot of talk about the impact of bitcoin around the world,” Mr. Silbert said. “This is the company that’s actually executing, that’s setting up the model.”

BitPesa’s idea was to focus initially on one “corridor” for remittances – the U.K. and Kenya. The company sent its people out to the Kenyan cafes, to meet locals and build up its small group of beta testers. They will begin with about 15 users, and expand over the summer.

Ms. Rossiello met Mr. Goldie-Scot when she was doing consulting work, and with his encouragement, the two co-founded BitPesa in November. “I took 30 meetings in two weeks talking about linking bitcoin and M-Pesa,” she said, “and I saw eyes light up.”

M-Pesa (pesa is Swahili for money) is a popular mobile money system, unrelated to BitPesa and run by Safaricom, the biggest mobile operator in Kenya. Transaction costs for M-Pesa vary according to the size and type, but they are generally low and the service has improved access for Kenyans. However, remittances still go through traditional money transmitters like Western Union, so those costs remain.

More than $400 billion globally was remitted from developing-world emigrants back home in 2013, according to the World Bank, and it expects that number to rise to $506 billion by 2016. “Those are only the official flows,” said the World Bank’s Dilip Ratha. He said the bank estimates nearly another $200 billion gets sent through unofficial channels. “The total size of the flows is enormous.”

Kenyans remitted $1.3 billion back home in 2013, according to Kenya’s central bank.

For many developing nations, the remittance business accounts for a larger share of foreign exchange than imports, and the World Bank in particular has a high-profile program in place with the goal of lowering those costs.

Those numbers do not include the fees that money transmitters like Western Union, MoneyGram, and WorldRemit charge; in aggregate, it amounts to roughly another 8.4%, according to the World Bank. But Sub-Saharan Africa has the highest remittances costs, with an average of 11.7%. For Kenyans in the U.K. sending money home, the total cost can range anywhere from just under 6% to nearly 13%, according to the World Bank.

BitPesa’s fee will be a flat 3%. Senders convert U.K. pounds to bitcoin on the one end, and recipients will receive Kenyan shillings on the other. The system rides on the bitcoin “rails,” but it isn’t strictly speaking a bitcoin product. “We are taking bitcoin, translating it into the local currency, and dispersing it the way people know,” Ms. Rossiello said.

The way that people know is cellphones. “Everybody has a phone,” she said. “You’re on a boat in the Indian Ocean with the fishermen, and they’re checking their text messages.” Kenya also has a higher percentage of citizens with bank accounts that most other places in Africa. “They’re way more financially knowledgeable than people give them credit for. You have to go way into the bush to find people who aren’t.”

If it takes off, the savings could be significant–and it can go back into the local economy.

Ms. Rossiello isn’t just interested in the remittance business, though. She sees BitPesa as being on the leading edge of a financial and technology boom in Kenya that will be greatly aided by the open-source nature of digital currencies. “The beauty of the system is it’s decentralized,” she said, “it makes it very easy to use the protocol.” She said the numbers at local meet-ups have been rising sharply, there are more coders, and there are even private groups teaching coding to children.

“Every meet-up has more and more engineers who are doing apps,” she said. “We’re starting, people are responding, people are excited about it.”

It’s typical, at least to a Western mind, to think of the remittance business as geared toward uneducated immigrants and impoverished Africans living in dusty villages. But Ms. Rossiello bristles at such stereotypes. She points out that Nairobi is a cosmopolitan city of 3 million, with an educated professional class.

“They’re not just living in a hut,” she said. “People want to start businesses.”

BitPesa will face some of the same challenges of any bitcoin-related enterprise. The firm is working to gain the backing of the local government, for one thing, and it will have to convince people to try something new for another. Getting the blessing of a big telecom company like Safaricom would be key as well. In all those instances, though, BitPesa will be going up against an entrenched competitor in M-Pesa.